The Clock Is Ticking For Canadian Exporters To Russia: New Sanctions Affecting Exports Of Goods And Services To Russia’s Mining, Energy, And Chemical Industries – Export Controls & Trade & Investment Sanctions

Canada continues to introduce new sanctions related to Russia’s invasion of Ukraine at a rapid pace. This bulletin details two new significant amendments to the Special Economic Measures (Russia) Regulations (the “Russia Sanctions”) that have the potential to impact many Canadian businesses with connections to Russia, particularly mining, energy, and chemical companies or companies servicing those sectors. The first amendment bans the export of certain services to Russia in relation to its oil, gas and chemical industries, while the second amendment introduces prohibitions that will come into effect on July 17 upon exporting, selling, supplying or shipping a lengthy list of goods to Russia or any person in Russia.

Ban on Exports of Key Services in Relation to Oil, Gas, and Chemical Industries

On June 7, the Russia sanctions were amended to prohibit the provision of key services to Russia in relation to its oil, gas, and chemical industries. These changes actualize Canada’s commitment, as announced in a G7 Leaders’ Statement, to “take measures to prohibit or otherwise prevent the provision of key services on which Russia depends” and target the approximately 50% of Russia’s federal budget revenues that are derived from the oil, gas, and chemical industries.

The new sanctions prohibit any person in Canada and any Canadian abroad from providing to Russia or any person in Russia — regardless of whether sanctioned or not — 28 services in relation to specified industries. The 28 services are listed in Part 1 of a new Schedule 8 and include a diverse range of services such as engineering work; construction work; sales on a fee or contract basis of metals, ores and industrial and technical chemicals; and water transport services, including freight transportation and towing. The 8 industries are listed in Part 2 of the new Schedule 8:

• Mining of coal lignite




• Extraction of crude petroleum and natural gas




• Mining or metal ores




• Other mining and quarrying




• Mining support service activities




• Manufacture of coke and refined petroleum products




• Manufacture of chemicals and chemical products

Both the services and the industries are defined with reference to international systems of classifications established by the United Nations. The services are identified in relation to the Provisional Central Product Classification, while the industries are defined in relation to the International Standard Industrial Classification of All Economic Activities, Revision 4. This means that the full scope of the services or industries that fall under these categories can only be assessed by consulting these classifications to determine the full scope of coverage.

Despite only being announced on June 8, these amendments entered into force on June 7, without any wind down period. As such, persons providing services to industries that are both covered under Schedule 8 will need to consider whether the contracts provide the tools to freeze or terminate the contract (eg, force majeure provisions), whether they can collect payment and how they may extricate themselves. from their contracts without violating the Russia Sanctions.

Export Ban of Certain Goods

On May 18, amendments were made to the Russia Sanctions banning the export, sale, or supply of certain goods to Russia effective July 17. While much of the media attention focused on the ban of exports of “luxury goods” listed in a new Schedule 6, the amendments also prohibit any person in Canada and any Canadian outside Canada to export, sell, supply or ship any good, wherever situated, listed in a new Schedule 7 to Russia or any person in Russia.

The goods listed in Schedule 7 were added, according to Global Affairs Canada, because they could be involved in the manufacture of weapons. Some of these items, such as tanks and armored vehicles, have clear military applications. However, many other goods have no obvious connection to the arms industry, but would be used in the mining and energy sectors or other heavy industry. Examples of goods covered by the export ban include:

• Coal or rock cutters and tunneling machinery




• Tower cranes




• Front-end shovel loaders




• Bulldozers and angledozers




• Mobile drilling derricks




• Ball or roller bearings




• Electrical machinery and equipment and parts thereof

These prohibitions will take effect on July 17 (ie, 60 days following the coming into force of the amendments), allowing businesses a period of time to wind down their business operations. As such, businesses should likewise consider how they may extricate themselves from their contracts while complying with the Russia Sanctions.

Conclusion

The new sanctions discussed above, alongside forthcoming changes to Canada’s sanctions laws, make Canada’s sanctions regime among the most aggressive in the G7. The frequency with which changes are being made to the Russia Sanctions, their ambitious scope, and severe consequences for violations, require Canadian businesses to closely monitor developments to meet their compliance obligations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.